April 21, 2011

A parable for the world economy

(This is the Afterword that appears in my book The Globalization Paradox. It is an attempt to state the book's central argument in the form of a bedtime story.)

Once upon a time there was a little fishing village at the edge of a lake. The villagers were poor, living off the fish they caught and the clothing they sewed. They had no contact with the other inland villages, which were miles away and reached only after days of travel through a dense forest.

Life for the villagers took a turn for the worse when the stock of fish in the lake plummeted. Villagers responded by working harder, but they were caught in a vicious cycle. The scarcer the fish got the longer the hours that each fisherman spent on the lake, which in turn depleted the fish stock at an even faster rate.

The villagers went to the village shaman and asked for help. He shrugged and said, "What is our council of elders for? They sit around all day and do nothing but gossip. They should solve this problem." "How?" the villagers asked. "Simple," he said. "The council should set up a fishermen's cooperative that decides how much fish each man can catch in a month. The fish stock will be renewed and we will not run into this problem in the future."

The council of elders did as the shaman suggested. The villagers weren't happy that the elders told them how to run their business, but they understood the need for the restraint. In no time, the lake was overflowing with fish.

The villagers returned to the shaman. They bowed in front of him and thanked him for his wisdom. Just as they were leaving, the shaman said: "Since you seem to be interested in my help, would you like me to give you another idea?" "Of course," the villagers cried in unison.

"Well," the shaman said. "Isn't it crazy that you all have to spend so much of your time sewing your own clothes when you could buy much better and cheaper ones from the villages on the other side of the forest? They aren't easy to get to, but you would only have to make the trip once or twice a year."

"Oh, but what can we sell in return?" asked the villagers. "I hear the people inland love dried fish," said the shaman.

And that is what the villagers did. They dried some of their fish and started to trade with the villages on the other side of the forest. The fishermen got rich on the high prices they received while the price of garments in the village dropped sharply.

Not all villagers were happy. Those who did not own a boat and whose livelihood depended on the garments they sewed were caught in a squeeze. They had to compete with the cheaper and higher-quality garments brought in from the other villages and had a harder time getting their hands on cheap fish. They asked the shaman what they should do.

"Well, this is another problem for the council of elders to solve," said the shaman. "You know how every family has to make a contribution during our monthly feast?" "Yes," they replied. "Well since the fishermen are now so much richer, they should make a bigger contribution and you should make less."

The council of elders thought this was fair and they asked the fishermen to increase their monthly contribution. The fishermen weren't thrilled, but it seemed like a sensible thing to do to avoid discord in the village. Soon the rest of the village was happy too.

The shaman meanwhile had another idea. He said: "Imagine how much richer our village could be if our traders did not have to spend days traveling through the dense forest. Imagine how much more trade we could have if there was a regular road through the forest." "But how?" asked the villagers. "Simple," said the shaman. "The council of elders should organize work brigades to cut through the forest and lay down a road."

Before long, the village was connected to the other villages by a paved road that cut down on travel time and cost. Trade expanded and the fishermen got even richer, but they didn't neglect to share their riches with the other villagers at feast time.

As time passed, however, things turned sour. The road gave villagers from beyond the forest easy access to the lake and allowed them to take up fishing, which they did in droves. Since neither the council nor the fisherman's cooperative could enforce the fishing restrictions on outsiders, the fish stock began to deplete rapidly again.

The new competition also cut into the earnings of the local fishermen. They began to complain about the feast tax being too onerous. "How can we compete effectively with the outsiders who are not subject to similar requirements?" they asked in desperation. Some local fishermen even made a habit of absenting themselves from the village on feast days—the road had made it easy to come and go—and evaded their obligations altogether. This made the rest of the villagers furious.

It was time for another trip to the shaman. The village held a long and boisterous meeting at which each side argued its case passionately. All agreed that the situation was unsustainable, but the proposed solutions varied. The fishermen wanted a change in the rules that would reduce their contributions to the monthly feasts. Others wanted an end to the fish trade with outsiders. Some even asked to blockade the road with boulders so that no-one could enter or leave the village.

The shaman listened to these arguments. "You have to be reasonable and compromise," he said after some thought. "Here is what I suggest. The council of elders should place a toll booth at the entrance to the access road, and everyone who comes in and out should pay a fee." "But this will make it more costly for us to trade," the fishermen objected. "Yes indeed," the shaman replied. "But it will also reduce over-fishing and make up for the loss in contributions at the feasts." "And it won't cut off trade altogether," he added, pointing with his head to the villagers who wanted to block the road.

The villagers agreed that this was a reasonable solution. They walked out of the meeting satisfied. Harmony was restored to the village.

Comments

Since when was weakening the WTO (if that is indeed what's going on) a bad thing? The set-up of the WTO, all of its accords and the GATS in particular were all brought to us by Jeffrey Sach's 'wrong economic model of the world', the same one that brought us the onging global economic crisis and precipitated the 'Arab Spring'. Ironic though it is that the anti-democratic and oligopolistic corporatization of the world that is at the centre of all that the WTO does should have precipitated discounted gucci such an uprising against repression,the fact remains that the way that the WTO was conceived and built is antithetical to everything discount gucci handbags democracy is supposed to stand for. 2945abc45 0421

Or, what if, in response to the toll booth, that other village puts up its own toll booth at the end of the road, imposes a high tariff on imported dried fish, and the people of the other village find alternatives to the now very expensive dried fish?

Perhaps it would be worth establishing some kind of inter-village organization, which could serve as forum for the different villages to discuss trade issues, and, possibly, make commitments to keep tariffs and other forms of discrimination to a minimum.

I think your FT was quite good. I want to add one hiphone important thing, though. And that is, we should not forget that the ongoing bogus KCK trial is also almost entirely a product of wholesale Gulenists and that lousy newspaper that calls itself Zaman, just like this new wave of journalist arrests, and the Sledgehemmer case. Let us not forget that hundreds of elected Kurdish politicians and activists are in prison right now for doing nothing more than exercising their fundamental human rights. 2945abc45 0422

I love village parables for economy, I've seldom seen it used by economists, but I've always thought it's a great way of going from too complex to handle to something very simple, and then reintroduce the complexity step by step, to get to understand economic phenomenons much better.

Here, the need for regulation comes from a clearly identified limited resource.

So your solution is not the optimal one. The optimal solution should be pinpointed on this limited resource whereas the toll on the road isn't. The toll impacts and limits a lot of trade that has no relation with that limited ressource.

I think what's needed instead is a fishermen syndicate, and catch share agreement.

Do you know there's actually an island that works exactly this way ? (saw that on TV, don't remember what place it is unfortunately, and can't find the right keyword to locate it on the internet).
Their main resource is sea cucumber fishing. It's very easy to overfish sea cucumbers because they basically don't move and are a very easy catch. It's their island, they have their own laws, so they decided that if you're not a member of the fishermen syndicate you can't fish them, and there's a severely limited access to that syndicate membership. Newcomers only have temporary membership, it takes many years to get the permanent one, and they reserve themselves the right to let temporary members go if the resource level drops. But it works to protect the sea cucumber resource, and the syndicate also invests to have foreign expert come and analyze the sea cucumber population to help them determine what the adequate fishing level is.

But in most cases, the problem is that limited resources aren't so clearly identified and they are dispute on what the adequate fishing level is. Red tuna in the Mediterranean sea is a good example, it sounds simple at first but it's very hard to identify the precise fishing level. And next the fishermen don't want to respect the limit because they claim they are cheaters, some countries that are not part of the catch share agreement and are fishing freely, etc.

On the opposite hand, you get many people convinced and acting on the belief that many things are limited and that rules to limit access to it is absolutely required. This is the whole story of immigration. What is the limited resource that must be protected by limiting immigration ? Here in France nationalists, and unfortunately also Sarkozy's right-wing government, are quite open about what is limited : Jobs. We have a restricted amount of jobs, and foreigners taking them will create more unemployment. Of course many rather hide behind the argumentation that the foreigner overwhelm our health system. Well what if they work ? Doesn't that finance the health and social care they need ? A large majority of immigrants are young men that need little health and social care so there's a large positive disproportion between the amount of work they are able to produce and their social cost.
Of course when you make it illegal for them to work, you force them into illicit work, which mean that they won't be paying the tax that finance health and social care, and you have created the very problem you denounce.

Sorry if it looks like a lengthy aside, but it follows very logically. If you say we need commerce restrictions and toll to protect limited resources, then you need to realize a lot of people consider jobs themselves are a limited resource, and that's why they want restrictions and toll everywhere.

What actually happens is that the fishermen buy the election of a new shaman. He then rules that the fishermen have property rights over the lake and the fishermen agree amongst themselves to limit overfishing to maintain higher prices for fish. They use the extra profit to buy the votes of the village council to ensure that there are no tolls on imports of the goods which fishermen want to buy.
Adam Smith only used the phrase "invisible hand" once in his writings. It was not about the internal division of labour within society but about whether external trade restrictions were needed to ensure activity at home. His argument was that there were so many risks and uncertainties about doing business abroad that there was an enormous home bias working in favour of domestic activity. The whole of post-war globalisation has been about reducing this home bias. But a bit of home bias is actually a good thing.
By the way, after a few years the village feasts are cancelled. The fishermen obtain proof from a number of independent economic research institutes which they fund that the feasts remove the incentive from non-fishermen who thus are unwilling to take jobs in domestic service at lower wages.

We will all be down and depressed when gas goes up to $10 or $12 a gallon because then we'll be in BIG trouble. It makes me laugh when the news says the governments of the coalition forces now in the Mediterranean say they don't yet have a plan. Mark my words ppl, NATO and the USA have intervened with Lybia to be ready for a coming crisis in Saudi Arabia because they know what's going to happen if that oil stops flowing. A Total﻿ Global breakdown. Watch and see.

Thank you my friend for noticing. I had been in some﻿ really cool movies and have met some of the most famous people in the world. But now I know that God was training me to do just this. I will no longer pursue my own glory but give all the glory to God. I have had to turn down jobs because of language and/or content. Not very popular in Hollywood where everyone is a sell out. I still do commercials and plays now and then just because I love doing it. My heart is with God.

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That's the parable of trade and seek! LOL! An economy like that is win-win situation, but it is never easy to achieve. Although it ended up like a fairy tale with a happy ending, it's good to point out that fairy tales don't exist. You know what that means.

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A special frame and sound box was constructed to mount the stones for the performance. Brian used 35 of the 60 slate notes for his composition. These notes correspond to the white notes on a piano. The performance was amplified and the sounds of the stones drifted across the lake and into Coniston village. The performance was also broadcast over a short wave radio station.http://bit.ly/rzsThp

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